The ministers decided to impose restrictions on the Strip including limiting the supply of fuel and electricity from Israel to Gaza, the transfer of goods through the crossings, the movement of people to and from the Strip, stopping visits to prisoners, and increased monitoring of funds.

"The limitations will be implemented in accordance with formal legal position papers and the humanitarian situation in the field," read a statement following the cabinet decision.

A senior government official said that two approaches were presented during the meeting. One was to cut off electricity in response to every rocket. This approach was found to be problematic in terms of international law because it would constitute collective punishment.

The second approach, which the ministers accepted, was to compromise the ability of Hamas to govern in Gaza as the quality of life deteriorated. "We will reduce the amount of megawattage we provide to the Strip, and Hamas will have to decide whether to provide electricity to hospitals or weapons lathes," the official said.

The cabinet also authorized the closure of crossings in response to rocket fire for up to 48 hours.

Prime Minister Ehud Olmert said during the meeting that "the price of a military operation in Gaza is known to all, and in any case conditions are not ripe for this."

Defense Minister Ehud Barak echoed this sentiment, adding "We will embark on action at the right time, not on order to let off steam."

However, Barak also said that "every day that passes brings us closer to an operation in Gaza; we will decide on the means of an operation and the goals when the time comes."

Secretary of State Condoleezza Rice said yesterday that Hamas "is indeed a hostile entity. It is a hostile entity to the U.S. as well."

Speaking at a news conference following her meeting with Foreign Minister Tzipi Livni, Rice added, "However, we will not abandon the innocent Palestinian in Gaza and indeed will make every effort to deal with their humanitarian needs."

Livni said that the decision meant that "except for humanitarian needs," Israel will supply nothing further to the residents of Gaza."

Hamas denounced the security cabinet's decision and the sanctions as a "declaration of war." Said Hamas spokesman Fawzi Barhoum, "we must unite the ranks to come together in the conflict with the cruel enemy. There will be implications in the long term. This is another attempt to force us to surrender to agreements."

Palestinian Authority Chairman Mahmoud Abbas said in a statement, "this oppressive decision will only strengthen the choking embargo imposed on 1.5 million people in the Gaza Strip, increase their suffering, and deepen their tragedy."

Ashraf Ajrami, a minister in Abbas' government, said "It is collective punishment against the people of Gaza, and discourages serious political discussion."

Palestinian Information Minister Riyad al-Malki said, "We are going to ask the Americans to pressure Israel to refrain from taking such action."

However Palestinians have reportedly transmitted messages recently to Israel not to allow the opening of the crossings into Gaza for merchandise.

United Nations Secretary-General Ban Ki-Moon urged Israel to reconsider its decision to declare the Gaza Strip an enemy entity, warning that any cutoff of vital services would violate international law.

"I call for Israel to reconsider this decision," the secretary-general said in a statement read by UN spokeswoman Michele Montas. "Such a step would be contrary to Israel's obligations toward the civilian population under international humanitarian and human rights law."

Ban ended the statement by saying, "The continued indiscriminate rocket fire from Gaza into Israel is unacceptable and I deplore it. I understand Israel's security concerns over this matter."

Mazal Mualem adds: Likud Chairman Benjamin Netanyahu said that he welcomed the decision. "However at the same time the government decided to disengage from Gaza, the prime minister is promoting a diplomatic plan that will bring about the establishment of 'Hamastan' in Judea and Samaria, and to the threat of missiles not only on communities in the south but also on Tel Aviv and the Dan region."

Meretz Chairman MK Yossi Beilin called the cabinet decision "foolish as well as dangerous." Beilin added that the decision would strengthen Hamas, increase distress in Gaza, and damage Israel's image internationally.

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